Finance Monthly October 2019 Edition

In today’s hyper-competitive and dynamic market, businesses need to keep a sharp eye on managing cash flows and controlling costs. Undoubtedly, companies from time-to-time need working capital, and often look to secured loans as one of the primary means of providing the cash necessary to fund operations. Secured loans (loans in which a borrower pledges collateral as security for repayment and performance) generally offer distinct advantages over unsecured loans; most notably, there appears to be significantly more secured lenders than unsecured lenders in the market today, and the cost of capital (loan rate) tends to be less with secured loans compared to unsecured loans. Not surprisingly, a company’s collateral base will be a significant if not determining factor in the type of secured loan sought. Start-up and early- stage technology companies (which lack inventory or real estate) typically seek secured loans in which the company pledges its patent, trademark or other intellectual property assets, while a retail concern may find that an inventory-secured loan is ideal for its business model. In fact, there are a myriad of choices and issues involving securing debt financing and credit advances, and many factors to consider beyond a company’s collateral base or just securing a loan with the lowest interest rate. Further complicating matters, many companies require multiple secured loans; some businesses today seek both a traditional bank loan (which generally involves providing the bank with a “blanket” security interest in all of its assets), with its typical lower cost of capital, and a loan secured by either inventory, (also known as a revolver) or accounts receivable (typically through a factoring arrangement). A company that does not qualify for a bank loan, either because it lacks sufficient collateral (for example, a service company) or does not have the historical numbers to merit this type of loan, will often look to a revolver (if there is inventory) or a factor arrangement (involving the pledge of eligible accounts receivable) for its working capital needs. With all of these choices and the need to procure secured debt funding on advantageous terms, here are five strategies for selecting the secured loan that best fits your company’s particular needs and provides for sufficient funds at an optimal cost: 26 www.finance-monthly.com FINANCE & BUSINESS - 5 TIPS TO PROCURE THE IDEAL SECU RED BUSINESS LOAN